3 Percent Economic Growth: Is It Possible?
SCOTT SIMON, HOST:
The Trump administration unveiled details of its proposed 2018 budget plan this week. It would slash a lot of spending on education, environmental programs, food stamps, Medicaid funding and more and increase military spending by 10 percent. There's doubt in Congress that the budget will pass without a lot of changes. All of the proposals bank on a projection of 3 percent growth in the U.S. economy by 2021. Nick Timiraos is national economics correspondent for The Wall Street Journal and joins us in our studios.
Thanks so much for being with us.
NICK TIMIRAOS: Thanks for having me.
SIMON: Based on what you've learned, 3 percent growth - does that seem confident, optimistic or naive?
TIMIRAOS: Well, it's extremely optimistic. The professional forecasters at the Congressional Budget Office and the Federal Reserve see growth of a little less than 2 percent over the coming decade. And that's where we've been for the past decade. Now, presidents, in their budget, get to assume that all of their policies become law. So you always see a little bit higher increase in the growth rate in the White House budgets but nothing that's quite diverged like this from what the consensus view is.
SIMON: Are there times in history when the U.S. has had a growth rate of 3 percent?
TIMIRAOS: Yes, it's been quite common. I mean, if you look back over the last 200 years - and the Trump administration says this - we have grown at 3 percent. And we don't want to give in to this idea that we now have a lower growth rate. They see that as giving up. The issue right now - growth is a combination of your labor force, how fast you're adding workers to the economy and how productive those workers are.
So labor force productivity has been slow for the last decade. And the demographics in our country, the aging of the baby boom, means that the workforce is not growing as quickly as it used to. Those two things together explain why we've had 2 percent growth, and demographics are really baked in. So unless you're going to increase immigration, the labor force isn't going to grow at the rate that it did in the 1970s and the 1980s. That puts the onus on productivity. Boosting productivity was what the Trump administration is going to have to do to get 3 percent growth.
SIMON: And that would entail what?
TIMIRAOS: Well, the level of productivity growth you would need to get 3 percent growth - you'd have to see a boom. You'd have to see some of the best productivity the country has had since World War II, really something like the late 1990s. To do that, you would want to see investment in education, research and development or business spending, businesses investing more in factories and robotics and technology that's going to allow their workers to be more productive.
SIMON: Would 3 percent growth create enough economic activity to give jobs or wage increases to people, for example, who might lose food stamps?
TIMIRAOS: It would. If you don't think that it's realistic that we're going to get 3 percent growth - economic policy is about trade-offs. And so the Trump administration is inheriting a bleak fiscal picture here. Deficits are rising again because the baby boom generation is retiring. We're going to be spending more on Medicare and more on Social Security. And so you either have to change those programs or raise taxes or cut spending to prevent deficits from rising.
An alternative is you can say - well, we're just going to grow faster. But if you don't do that, then you end up with even higher deficits. So in 2027, the 10th year of this budget, the Trump administration assumes that their growth forecast will actually reduce spending by $500 billion that year. It'll bring in revenue of $500 billion so they can show a balanced budget. If you don't have that growth, now you actually have a much higher deficit.
SIMON: Nick Timiraos, national economics correspondent for The Wall Street Journal - thanks so much.
TIMIRAOS: Thanks for having me.
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